How the S&P 500 performs is far more important to USD/JPY pricing than Treasury-JGB yield spreads now, making the stock index's ability to clear the 50-DMA it's been struggling to get past since Aug.
8 significant for the currency pair.
The 21-day correlation between USD/JPY and S&Ps has soared from -.42 on July 31 to 0.82 now, while the correlation to 10-year Treasury-JGB yield spreads has fallen from .77 on Aug.
1 to .47 currently.
Yield spreads remain relevant as always. However, curve flattening has reduced the difference between 10-year and two-year Treasury yields, which is similar to the JGB curve. This increases the emphasis on risk acceptance that fuels flows into and out of stocks and the haven yen.
A pullback in geopolitical and economic risks today has driven the S&Ps 0.9% higher and helped USD/JPY up toward this week's 106.40 high.
But to get USD/JPY past key resistance at 106.68 S&Ps would probably have to convincingly clear its 50-DMA, last at 2,944.
Toppiness in the VIX and 1-month USD/JPY vols hint at better risk acceptance, but key U.S. economic data Thursday and Friday need to be upbeat enough to keep trade war fears from ruining USD/JPY and stocks rallies.